Contents of this Issue

Navigation

Page 44 of 88

CAPITAL MARKETS UPDATE
January/February 2018 StudentHousingBusiness.com
44
Off and Running
The student housing investment sales market is off and running for the year. Will 2018 break 2016's
big record? Early indicators are promising.
By Randall Shearin
A
As is par for the course this time of year, the
student investment market is slow to fully
kick into gear. But activity is off to a promis-
ing launch for 2018, according to investment
sales brokers and buyers who are beginning
to see more interest and potential listings from
sellers. The year started off with the news that
Scion Student Holdings — the joint venture
between The Scion Group and international
institutional funds CPPIB and GIC — had
acquired 22 assets from Harrison Street for
$1.1 billion. Likely, due to the closing date, that
transaction will count in 2017's final numbers,
bringing the year's total somewhere around
$8 billion. Numbers are still being tallied from
December sales, but early reports indicate that
2017 — while very strong — was not a record-
breaking year.
"In 2016, we had several big portfolio deals,"
says Chris Epp, principal with Four Point Stu-
dent Housing. "Last year, there were several
portfolio sales, but they weren't of the mega
size that we saw in 2016. That is what will keep
us away from setting a record. We did see a
number of individual sales and sales of smaller
portfolios during the year, which generated an
enormous amount of volume in the student
housing space."
Removing the $1.8 billion Campus Crest/
Harrison Street transaction — which was atyp-
ical for the industry — from 2016's $10 billion
total, 2017 is on par with the numbers from the
year before.
Investment sales professionals reported that
interest in proper-
ties that are listed
on the market is
strong, as long as
the properties are
priced realistically
and they fit buyers'
needs.
"There is a lot
of appetite out
there," says Wil-
liam Vonderfecht,
associate director
and co-leader of the
national student
housing team at
CBRE. "We are see-
ing strong demand
for both core and
value-add properties. We recently completed
marketing a value-add property for which we
received more than 30 offers."
"From my perspective as an owner, there
was still activity going into the end of 2017,
while in years past it seemed there was a bit of
a lull at that time," says Roger Phillips, prin-
cipal and CEO of TEXLA Housing Partners.
"There are, of course, deals still being actively
marketed and pursued not unlike any other
time. Buyers look to be herding around the
better located — geographically and by mar-
ket — deals. The deals that have inferior ages,
locations or markets are at an impasse, given
that sellers expect top-of-market pricing and
buyers aren't willing to push there."
Buyer Profile Changing
One big difference that many long-term
industry players have seen over the past few
years is a change in the sophistication of the
investment sales market. It is hard for indi-
vidual owners to buy one property, and harder
still for larger companies to buy a few assets to
test the waters with student housing.
"As the indus-
try continues to
consolidate, it is
tough to dabble in
the sector," says
Avi Lewittes, chief
investment offi-
cer for The Scion
Group. "It is hard
to be an accidental
tourist in student
housing today. You
either have a vision
and a strategy, and
access to capital
that will enable you
to be a long term
player, or you are
developing, selling and moving to the next
project. People are staking out positions in the
market and recognizing the benefits of focus
and discipline — a sign of evolution for the
industry."
Related to this, it is hard for a smaller buyer
who is not familiar with the sector to acquire a
single asset in a top tier market. Several years
ago, this wasn't the case. Today, larger buyers
prefer scale, acquiring portfolios rather than
properties one-by-one. Many one-off proper-
ties are being sold by institutional owners who
are pruning their portfolios to assimilate their
assets. For larger buyers, to play in the game
today means you have to come to market with
your best foot forward, and have clean execu-
tion with deals.
"There's a
diverse crowd of
investor types cur-
rently in the mar-
ket," says Doug
Kligman, chief
investment officer
at Vesper Hold-
ings. "Over the past
decade, institu-
tional investors and
sovereign wealth
funds have estab-
lished equal foot-
ing as buyers with
the private equity
shops, syndicators
and REITs."
Sales Pricing
Cap rates have held steady in the market
over the past 18 to 24 months, bifurcating
between value-add properties at the high end
and core, pedestrian-to-campus assets at the
low end. In Tier 1 markets, TSB Realty reports
core assets trading between 4.75 percent and
5.25 percent, with cottage product trading
between 5.25 percent to 5.5 percent. Value add
properties have a wider swing in the range,
according to Austin Repetto, principal of TSB
Realty, because the properties are not typi-
cally stabilized and the strategy to turn them
around can differ from buyer to buyer. Inter-
estingly, traditional multifamily assets, which
have cooled slightly in popularity with buyers
over the past two years, are trading at about
the same levels.
"We have seen a fair amount of convergence
around property valuations in the 5.25 to
5.75 percent cap rate range for high quality
product in Tier 1 and top Tier 2 markets," says
Lewittes. "It is now less about continued cap
rate compression generally and more a func-
tion of higher quality value-add opportuni-
ties being bid up to near core and stabilized
pricing levels, resulting in a reduced cap rate
WILLIAM
VONDERFECHT
Associate Director and
Co-leader of the National
Student Housing Team,
CBRE
DOUG KLIGMAN
Chief Investment Officer,
Vesper Holdings
AVI LEWITTES
Chief Investment Officer,
The Scion Group